Home Budget Tracker - helps you manage day to day spending. Use it to input receipts, track account balances, stick to your budget, and reconcile statements. Designed to be used by individuals and couples on the go at any stage of life.

Income Spending Simulator - projects the course of your financial life. It is useful when considering career changes, major lifestyle choices and retirement (how soon and how wealthy). For numbers oriented people it can be fun to play with as it is designed to be open-ended. The compare mode shows you what a specific change would have on cash flow, asset appreciation, and ending net worth.

This calculator generates simulation runs for each year of data in our historical dataset (1928 - 2017) based on what you enter above. It is useful for comparing portfolio allocation outcomes, realistic withdraw rates, and setting a savings goal. It outputs the percent of time the simulated nest egg stayed above water or ran out of money.

Field Summary:

Length of Retirement - how long do you expect to live after you retire? Age 100? Age 85? To be conservative, enter a higher value.

Savings at Retirement - how much money you have saved up before retiring and starting to draw on your nest egg.

Withdraw Amount - how much you plan to withdraw in the first year (this amount does not count social security, pensions, or other income sources, just the amount you plan to take out of your nest egg each year). During the simulations the withdraw amount is adjusted for inflation.

Withdraw Percent - the percent of your nest egg you plan to withdraw in the first year to live on, see Withdraw Amount notes.

Portfolio Strategy - you can pick from the predefined allocations of Stocks, Bonds, and Cash, or enter your own.

Stocks - percent of funds to put into the US S&P 500 Index.

Bonds - percent of funds to put into 10 Year US Treasury Bonds, with returns including coupon and price appreciation.

Cash - percent of funds to put into a 'risk free' investment. The simulator uses the returns of 90 Day US Treasury Bills. A similar rate is attainable with an FDIC insured money market account.

Some insights into the results this tool unearths:

You may be surprised to find that an "All Stock" portfolio is risky, but often not as risky in the long run as an "All Cash" portfolio. Why is this? Historically speaking, compared to cash, stocks have done a much better job of a) growing and b) keeping up with inflation. Try switching your portfolio to All Cash and watch how the graph looks like a comb over instead of a mountain.

Looking at the simulation high and low numbers (which can be mind bogglingly wide), luck plays a role in the individual's outcome. The year in which you retire could make a huge difference, but you won't know until it is too late. For example, the simulations show that people who retired in 1975 were in great shape because of the economic booms in the 80s and 90s, but the people who retired in the mid 60's didn't live long enough to recoup their early losses.

Portfolios that blend stocks and bonds do a good job of bringing up the low end of the simulation, based on the historical data anyway. Diversification reduces risk but also reduces upside.

Each simulation plods along every year in the way it is programmed to. It always rebalances every year and withdraws the right amount. In reality, life happens, emergencies happen, and investors panic and sell in bad times. This calculator is what they call a 'disciplined investor' in that it doesn't panic during the bad times, nor does it go crazy and buy a diamond studded phone case in the good times.

How the simulations work:

This calculator is NOT a Monte-Carlo simulator in that it does not generate any fake or random data. Instead, this calculator uses historical data and backtests against it. Essentially it replays what happened in each of the years in the dataset given the inputs and then summarizes the results.

For a 30 year retirement period, this calculator will run a simulation from 1928 to 1958, then it will run a simulation from 1929 to 1959, then from 1930 to 1960, and so on. In simulations that go beyond 2017, it will wrap back to 1928 and count up from there. In this sense, the effect of the great depression is factored in for early and late starting years.

Each individual simulation computes returns by stepping through the years (eg 1928, 1929, ... 1958) and performs the following each year:

Calculates the change in value in the portfolio.

Adjusts the annual withdraw amount for inflation based on the CPI (consumer price index) for that year.

Updates the portfolio balance by adding the change in value and subtracting the withdraw amount.

Rebalances the portfolio.

Regarding the Annual Withdraw Percent:

The famous Trinity Study suggests a 3-4% withdraw rate is a good place to be: "If history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds...". Keep in mind, this calculator and the Trinity Study rely on backtesting, which means historical data is analyzed for a 'best fit'. Yesterday's best fit may turn out to be a very poor fit in the future. Nobody really knows for sure what will happen next. In general terms, a lower withdraw rate means the nest egg with last longer.

Notes on Inflation:

The numbers this calculator outputs are not inflation adjusted, they are nominal values. The numbers don't translate to actual purchasing power in the starting year of the simulation. However, this calculator does adjust the withdraw amount by the CPI each year of the simulation. For example, given a 30 year retirement and an initial withdraw amount of $50,000, the simulation starting in 1975 would increase the withdraw amount all the way to $181,440 in 2005 (in the final year of that simulation run) based on the change in CPI.

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DISCLAIMER:
This calculator is provided for educational purposes and should not be considered financial or investment advice.
We have checked the equations and code used and we think they are right.
However, we offer you no guarantee of accuracy.
If you find a bug please let us know so we can fix it for you!

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